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Two essay questions assessment (1200 words in total) on ethical asepses in a case provided. Please refer to the details of the assessment attached (file name: Finanicial Accounting- Details of assessment 1).
Description

You will conduct a short investigation around some legal and ethical issues (if any) which could significantly impact corporate financial performance and reporting. These are examples of the issues that any business might face within the real world.

Specific Requirements

Part 2 (a) (25 + 25 = 50 marks)

Craig Norm, an engineer, of Norm Engineering, has been contracted by the Australian Building Association (ABA) to conduct an audit of the materials installed and supplied by City Builders Pty Ltd. City Builders supplies and fit cladding to the external walls of apartment buildings throughout Australia. The cladding is both decorative and forms part of the building structure.
Craig, on completion of his audit determines the cladding to be highly flammable and potentially very dangerous. Tim Jones is the owner and director of City Builders. Upon advising, Tim is devastated and knows if he loses his building license and subsequently his business, he will not be able to afford to care for his family. They will likely lose their home.
Prior to submitting his audit report to the ABA, Tim approaches Craig with an offer to make him a director and shareholder of City Builders Pty Ltd at no cost to Craig. He also offers to pay Craig thirty percent of all company profits. City Builders has been highly profitable in recent years due to the building boom in apartments in Australia. The only condition Tim places on Craig is that he does not disclose his findings about the cladding in his report to the ABA.

Required:

Discuss Craig’s’ ethical position / obligations and his possible courses of action. Your research should be drawn from the prescribed text, articles, and any relevant ethical frameworks.

Part 2 (b)

Harminder recently had dinner with his sister Priya, who is a senior accountant at AAA Ltd, a large pharmaceutical company listed on the Australian Stock Exchange. Over dinner Priya expressed her concerns about many recent complaints about one of their leading products CoVax. CoVax, which is promoted as a cure for many deadly diseases, has reportedly been responsible for many premature deaths of clients. There is to be a major investigation by authorities into the company and its practices regarding the drug CoVax and other products. Harminder and his parents have always supported Priya’s career decisions and consequently have invested many thousands of dollars buying shares in AAA Ltd. The family are now considering selling all their shares before this news hits the financial press, which is imminent in the next few days.

Required:

Discuss the ethical or legal implications that may follow if Harminder and his family sell their shares prior to this announcement and their possible courses of action.

From your research, ensure you cite all references in your answer together with supporting legislation if any. Harvard citation method and compliance with Turnitin program. (900 – 1200 words)

Your total mark out of 100 will be converted to a percentage out of 20%

Submission
· Please refer to the rubric for guidance on the marking structure.
· Any work you submit may be checked by electronic or other means for the purposes of detecting collusion and/or plagiarism.
Marking and feedback
The marking rubric for this task is attached.
It is always a useful exercise to familiarise yourself with the criteria before completing any assessment task. Criteria act as a boundary around the task and help identify what assessors are looking for specifically in your submission. The criteria are drawn from the unit’s learning outcomes ensuring they align with appropriate graduate attribute/s.
Identifying the standard you aim to achieve is also a useful strategy for success and to that end, familiarising yourself with the descriptor for that standard is highly recommended.
Referencing

Any material used in this assignment that is not your original work must be acknowledged as such and appropriately referenced.

Learning objectives
At the end of this chapter, you should be able to:
LO 3.1 discuss what is meant by sustainability reporting and explain the

Global Reporting and Integrated Reporting initiatives

LO 3.2 identify the factors that should help determine appropriate ethical
behaviour for accountants

LO 3.3 explain what is meant by the term ‘corporate governance’ and identify
the eight ASX Corporate Governance Council principles

LO 3.4 discuss the issues associated with the role of the board of directors and
the audit committee in corporate governance

LO 3.5 identify the approaches to enforcing corporate governance
requirements in Australia and the USA.

Chapter 3

Sustainability reporting, ethics
and corporate governance

68

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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Introduction
In Chapter 2 we considered aspects of financial reporting and the types of financial statements. In
addition to financial information, many organisations now provide social, environmental and governance
information. In this chapter we discuss sustainability reporting and explain the most commonly adopted
protocols in relation to sustainability reporting, which in most countries is largely a voluntary exercise.

An inevitable consequence of a capitalist-based economy that rewards profit is the failure of companies.
This may be due to poor management, inadequate capital, excessive risk taking and, unfortunately in some
instances, greed! The Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry (also known as the Banking Royal Commission) in Australia in 2018 yielded many
examples of unacceptable behaviour in business. The spectacular failure of companies such as Enron and
Lehman Brothers among others in the USA, Vivendi and Parmalat in Europe and the Hastie Group and
Centro among others in Australia provide further examples of unethical behaviour.

In 2009 the sub-prime lending debacle precipitated the Global Financial Crisis, which resulted in
unprecedented problems with the world’s financial system. This caused governments in many countries
to intervene to guarantee bank loans and acquire shares in many banks. The failure of such high-profile
companies and banks raises serious concerns about many issues, including ethical behaviour, regulation
of financial institutions, transparency of financial reporting, the appropriateness of accounting standards
and corporate governance.

In this chapter we first look at sustainability reporting before turning our attention to the issue of
ethics and ethical behaviour in business. We then discuss corporate governance and explain what is meant
by internal and external corporate governance. We examine issues associated with the role of boards
of directors and the audit committees as part of corporate governance. We finish by highlighting the
corporate governance requirements in Australia and other countries.

3.1 Sustainability reporting
Traditionally, organisations, particularly listed organisations, have pursued the maximisation of profit
as their major objective. In accounting, reporting on financial performance has been their central focus and
is the central focus in this book. But in the twenty-first century there has been a growing concern about the
ability of the world’s resources to be able to meet the needs of future generations if not properly managed.
The 2009 Global Financial Crisis caused a rethinking of the capitalist model and its focus on short-term
outcomes. Sustainability and sustainable development are now important issues on the world agenda, but
what is meant by the term ‘sustainable development’?

The following definition is the one used by Dantes (2005):

The concept of meeting the needs of the present without compromising the ability
of future generations to meet their needs. The terms originally applied to natural
resource situations, where the long term was the focus. Today, it applies to many
disciplines, including economic development, environment, food production, energy
and social organisation. Basically, sustainability/sustainable development refers to
doing something with the long term in mind.

Dantes. (2005). Akzo Nobel, www.dantes.info/
Projectinformation/Glossary/Glossary.html

corporate governance
(Chapter 3) Mechanisms
such as the board of
directors and audit
committees which exist to
provide some assurance
to the absentee owners
that the management of
a company is accountable
for its actions and
to minimise agency
costs in respect of its
management.

audit committees
(Chapter 3) A
subcommittee of the
board of directors, and
part of the corporate
governance of a company.
Its roles depend on the
company, but in general it
ensures that the financial
statements have been
reliably prepared and
verified.

LO 3.1
Discuss what is meant
by sustainability
reporting and explain
the Global Reporting
and Integrated
Reporting initiatives.

ChapteR 3 SuStainability reporting, ethicS and corporate governance 69

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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Many organisations have for some years provided additional information in relation to environmental
and social issues beyond what is required in financial statements. The practice of publishing various types of
corporate social reports is largely voluntary and has emerged with the increasing concern about sustainable
development. There are a variety of names for this type of report. These include: environmental report,
corporate social report, sustainability report, social impact report, stakeholder impact report, corporate
social responsibility report and triple bottom line (TBL) report.

A TBL report refers to the publication of economic, environmental and social information in one report
and has three components:
» Environmental: disclosures about many issues associated with the environment and the organisation’s

activities within this area. These may include issues to do with air, water, land, natural resources, flora,
fauna and human health (e.g. greenhouse gas emissions, water contamination and workers’ safety).

» Social: disclosures about many social issues such as the diversity of the organisation’s employees,
treatment of minorities, employment conditions for employees and community activities (e.g. criticism
of Nike’s ‘sweatshop’ production operations in Asian countries).

» Economic: the more traditional financial data and, for this reason, likely to contain more quantitative
data than the previous two components. However, it is not the GPFS which are provided in annual
reports. For example, financial information would include details about the entity’s ability to meet
superannuation obligations to its employees.
Some organisations, such as mining organisations, have certain mandatory reporting obligations and

conditions, such as restoring the land to its original condition after they have finished mining operations.
However, such mandatory obligations only apply in certain industries and, in general, most organisations
providing information about social and environmental issues do so on a voluntary basis.

The TBL is sometimes described as reporting about People, Planet and Profit (Figure 3.1), which is
not entirely accurate as the financial disclosures in such reports are not the same as included in the GPFS
discussed in Chapter 2.

Ethics/CSR
Sustainability reports are
largely voluntary.

PROFIT
Financial

PLANET
Environmental

PEOPLE
Social

Figure 3.1
Triple bottom line of
sustainable business
models

The disclosure of information in sustainability reports is largely voluntary and so the question arises as
to why profit-making companies produce such reports? In their 2017 sustainability report on page 6, the
company Woodside stated that one of the reasons for producing such a report is:

70 paRt 1 Financial accounting

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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We recognise that long-term meaningful relationships with communities are
fundamental to maintaining our licence to operate, and we work to build mutually
beneficial relationships across all locations where we are active.

Woodside Sustainability Report 2017, p. 6

Key concept 3.1: Sustainability reporting

Reporting on an organisation’s environmental, social and financial activities so users can assess the
sustainability of the organisation’s operations.

The Global Reporting Initiative (GRI)
The most widely cited benchmark in the determination of what should be included in a TBL or sustainability
report is the Global Reporting Initiative (GRI) – an institution based  in the Netherlands. The GRI
was established through the United Nations Environment Program with the objective of enhancing the
quality, rigour and utility of sustainability reporting. In 2002, the GRI released the Sustainability Reporting
Guidelines. In 2006 it released G2, containing revisions to the 2002 version, and in 2013 G4 was published
with further revisions. In October 2016 the first set of global standards for sustainability reporting were
released. These apply from 1 July 2018. The GRI identified a series of trends that added momentum to
the need for techniques that enhanced an organisation’s ability to more consistently and comprehensively
report on the economic, environmental and social dimensions of its activities, products and services.

The GRI indicators were created through a process of stakeholder dialogue. In G4 there are two options
described as core and comprehensive. These options were retained in the new GRI Standards. The core
option contains the essential components of a sustainability report. The comprehensive option contains
all the parts of the core and has additional disclosures about the organisation’s strategy, governance and
ethics. The guidelines discuss principles for deciding on the report content and report quality.

The content principles upon which the GRI guidelines are based are:
» materiality – the report should cover topics and indicators relating to the organisation’s significant

environmental, social and economic performance, which enable users to make an informed assessment
» stakeholder inclusiveness – the report should engage stakeholders in the development of reports
» completeness – the TBL report should include all material information
» sustainability context – the TBL report should attempt to place information in a larger context of

ecological or social limits.
The quality principles upon which the GRI guidelines are based are:

» balance – the report should describe both positive and negative aspects of the organisation’s performance
» reliability – information should be gathered, compiled and reported in such a manner that is capable of

being verified by an external party
» accuracy – there should be a low margin of error
» comparability – consistency should be maintained in the preparation of the report to enhance comparability
» clarity – the report should be meaningful to as wide a range of users as possible
» timeliness – the report should be available on a regular basis so that information is not meaningless.

In the guidelines, each of the three areas (economic, environmental and social) are detailed, and if there
are applicable measurement methods these are also specified.

Under the environment theme, the GRI has specified, in detail, 34 indicators for organisations to report
on. The headings in the environment area are: materials; energy; water; biodiversity; emissions, effluents

Global Reporting
Initiative (GRI)
(Chapter 3) The multi-
stakeholder interest
group that has taken on
the task of developing
and having adopted
global guidelines for the
reporting of organisation
sustainability.

ChapteR 3 SuStainability reporting, ethicS and corporate governance 71

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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and waste; products and services; compliance; transport; overall; supplier environmental assessment; and
environmental grievance mechanisms.

In the social area, there are 48 indicators under the following headings: employment; occupational
health and safety; labour management/relations; training and education; diversity and equal opportunity;
equal remuneration for women and men; supplier assessment for labour practices; labour practices
grievance mechanisms; investment; non-discrimination; freedom of association; child labour; forced or
compulsory labour; security practices; Indigenous rights; supplier human rights assessment; human rights
grievance mechanisms; local communities; anti-corruption; public policy; anti-competitive behaviour;
compliance; supplier assessment for impacts on society; grievance mechanisms for impacts on society;
customer health and safety; products and services labelling; marketing communications; and customer
privacy and compliance.

Finally, in the financial area there are nine indicators under the following headings: direct economic value
generated and distributed; financial implications and other risks and opportunities for the organisation’s
activities due to climate change; coverage of defined benefit plan obligations; financial assistance received
from government; ratios of standard entry-level wage compared to local minimum wage at significant
locations of operation; proportion of senior management hired from the local community at significant
locations of operation; development and impact of infrastructure investments and services supported;
significant indirect economic impacts including the extent of impacts; and the proportion of spending on
local suppliers at significant locations of operation. Figure 3.2 is an extract from page 46 of the Woodside
Sustainable Development Report 2016 and shows the type of financial information consistent with the GRI.

Value generated and
distributed ($ billion)*

4.5
4.08 (0.28)

(2.07)

(0.66)

Value
generated

1. Consistent with the Group’s Financial Statements, consolidated statement of cash flow. It includes Woodside’s gross payroll costs reported on a cash basis.

* Amounts have been derived from the Woodside Annual Report 2016, or converted into USD using the average rate of 0.74 AUD/USD.

2. Supplier costs are consistent with the Group’s audited financial statements. They include operating capital and exploration expenditure paid to suppliers and contractors
for materials and services and exclude employee wages and benefits, payments to governments, payments to community groups, investments and repayments, interest,
depreciation, amortisation, impairments and relevant indirect taxes.

Dividends1 Suppliers2 Employees1 Interest1 Communities1 Taxes1 Investments and
repayments1

Value
retained

(0.16)
(0.01) (0.38)

(0.35)

0.17

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

Figure 3.2
Woodside value add

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72 paRt 1 Financial accounting

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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Integrated reporting
In this section we examine the concept of integrated reporting, which involves organisations reporting
on all activities relevant to value creation. Such reporting includes financial information but also
includes information on strategy, environmental, social, governance and other value-relevant activities
in an integrated report. The International Integrated Reporting Committee (IIRC) was an outcome of a
Sustainability Forum meeting on 17 December 2009 initiated by Prince Charles of the United Kingdom.

While a triple bottom line (TBL) report refers to the publication of economic, environmental and social
information in one report, integrated reporting extends the TBL to include information on governance,
strategy and any other relevant information about how an organisation creates value. The target audience
for an integrated report is the providers of financial capital, while a sustainability report is aimed at a
broader range of stakeholders who want to know about an organisation’s environmental and social impacts
and how it is managing them. An integrated report adds information about governance and strategy to
the TBL with the understanding that these areas are often linked. Rio Tinto workforce policy for its mines’
workers is a good example:

In Western Australia in our Iron Ore product group, we employ 10 500 people: 13.5%
of the residential workforce are members of Indigenous groups from the Pilbara
region.

Rio Tinto, 2018, p. 52

Having a local workforce is a cheaper alternative than the ‘fly-in, fly-out’ workforce and has a number of
social benefits for the region, including the employment of a large number of Indigenous people.

The IIRC began a pilot program in 2011 so as to underpin the development of a framework for integrated
reporting. There were over 90 organisations involved in the pilot, including organisations like Coca-Cola
and National Australia Bank (for more information go to www.theiirc.org). It has grown since then and now
many companies around the world publish an integrated report but it is only mandatory in South Africa.

What then are the main differences between an integrated report and a sustainability report? The
two are closely related – especially if an organisation chooses the comprehensive option in the GRI’s G4
Guidelines and GRI Standards – as both provide information about an organisation, its governance and its
economic performance as well as many aspects of its social and environmental impacts. It is argued that
the objective is different as the integrated report is aimed at providers of financial capital and provides
such users with details about how its strategy, governance, performance and prospects lead to the creation
of value over time. On the other hand, the sustainability report is aimed at a broad range of stakeholders
with the objective of providing information about the economic, social and environmental impacts of its
operations. Will organisations provide two separate reports? Only time will tell but it is unlikely given the
similarity between the two and the costs involved in preparing two separate reports.

integrated reporting
(Chapter 3) A framework
intended to guide
the preparation and
dissemination of periodic
reports about how an
organisation’s strategy,
governance, performance
and prospects, in the
context of its external
environment, lead to the
creation of value in the
short, medium and long
term.

Stop and think 1

Why do profit making companies voluntarily provide a TBL or integrated report?

ChapteR 3 SuStainability reporting, ethicS and corporate governance 73

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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3.2 Ethics in accounting
Figures show that corporate fraud costs billions of dollars each year, as shown by the collapse of companies
in many countries including the US, Italy and Australia. Fraud is also not restricted to the for-profit sector,
as illustrated by the 2014 BDO survey of fraud in the not-for-profit sector. How does a large public company
like Dick Smith collapse, resulting in the loss of billions of dollars? How do we solve problems of corporate
fraud and embezzlement?

Dr Rushworth Kidder, president of the Institute for Global Ethics in the USA, argues that this will not
happen if companies adopt codes of ethics and create departments responsible for monitoring these codes.
Employees should receive training about the codes of ethics and be required to follow them.

What is the relationship between business and ethics? Are ethics good for business? The answers to
such questions depend on how we assess what is good for business. If we use short-term profitability as a
measure, it may be that, on some occasions, doing what is ethical may not lead to short-term profitability.
It may well improve long-term profitability, but if you are not in the company for the long haul, why bother
being ethical? This raises issues about the objectives of business. Does the goal of profit maximisation
conflict with ethical behaviour? Is there a conflict between self-interest and ethical behaviour? In
Chapter 1 we introduced agency theory which explains the reason for contracts which try to align the
interests of shareholders and managers. Such contracts may in fact be the reason some managers engage
in unethical behaviour.

Two frameworks developed by ethicists that are relevant to our discussion are utilitarianism and
deontology. Utilitarianism judges the moral correctness of an action based entirely on its consequences.
The action that should be pursued is the one where the favourable consequences to all parties outweigh the
unfavourable consequences. The consequences to all parties that will be affected must be included.

In deontology the underlying nature of the action determines its correctness. There are two types of
deontologists. Some feel the action itself is the only thing to be considered – lying, for example, is always
unacceptable. Other deontologists believe that, for example, the nature of the action and its consequences in
a particular situation should be considered. Therefore, in particular circumstances, lying may be acceptable.

Given the enormous costs of fraud and embezzlement, the potential gains to society of ethical behaviour
are significant. The difficulty lies in developing an appropriate code of ethical behaviour that is adhered to
by all people in business.

Business or professional behaviour is governed by sets of rules laid down by controlling bodies, and
members of organisations or the profession are expected to follow these rules. In some professions,
‘ethics’ has come to mean these rules. For example, professional ethics should be regarded as ‘standards of
professional conduct (the ethics of lawyers)’ (Statsky, 1985).

The financial problems of companies like Enron and HIH in the late 1990s and early 2000s can be
attributed, in part, to some accountants substituting ‘the rules’ for genuine ‘ethical behavior’. In 2018
the Banking Royal Commission provided many examples of unethical behaviour. Is it acceptable to follow
the requirements of the Corporations Act, even when, by following the strict letter of the law, one was able to
gain an unfair advantage that did not reflect the spirit of the law?

As noted earlier, a lack of ethics contributed in some way to the gains made by some of the high-flyers
involved in companies like Enron and HIH in the late 1990s and early 2000s. In 2013 allegations of
corruption were made against Leighton Holdings in Australia. In 2016 Dick Smith retailer failed, leaving
many disgruntled customers and employees. The Global Financial Crisis again highlighted issues around
ethical behaviour and governance. However, many individuals and organisations have since paid a very
high price for being unethical.

LO 3.2
Identify the factors
that should help
determine appropriate
ethical behaviour for
accountants.

Ethics/CSR
How do we solve the
problems of corporate
fraud and embezzlement?

agency theory
(Chapter 3) A theoretical
model describing
relationships where one
party (i.e. the principal)
delegates decision-
making powers to another
(i.e. the agent), and the
mechanisms by which
the principal seeks to
mitigate the risks of the
agent acting only in his/
her own interests.

74 paRt 1 Financial accounting

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
Created from deakin on 2021-03-22 07:12:19.

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Because they offer so many services to the general public and the business community, professional
accountants should always conduct their business in an ethical manner. Major professional accounting
bodies in all countries have developed codes of professional ethics to help members deal with the range
of situations they encounter in their professional lives. A CPA Australia survey on professional ethics
asked respondents to rank various types of ethical issues. The results showed that the issues of greatest
concern were:
» client proposal for tax evasion (83.3%)
» client proposal to manipulate financial statements (80.2%)
» conflict of interest (79.3%)
» presenting financial information in the most proper manner so as not to deceive users (76.3%)
» failure to maintain technical competence in the discharge of duties (71.3%)
» coping with a superior’s instructions to carry out unethical acts (70.6%).

In Australia, the major professional accounting bodies have now adopted the Code of Ethics for
Professional Accountants as developed by the Accounting Professional and Ethical Standards Board
(APESB). The full code can be viewed at http://www.apesb.org.au/page.php?id=12.

The rules of the professional bodies are intended not only to guide but, in some ways, to provide
protection from the above types of ethical dilemmas for accountants. However, there are always some who
are tempted to move around the rules for personal gain, and in the long run the profession and society are
the losers. When dealing with accountants, individuals expect, and deserve to receive, conduct that will
enhance the status of all who belong to that profession. Ethics in business and accounting are a matter of
judgement based on rules and moral obligations.

To highlight the importance of ethics we have included a case study involving an ethical dilemma at the
end of each chapter.

Key concept 3.2: Professional accounting ethics

All members of the professional accounting bodies in Australia are required to comply with a code of
ethics and they are expected to act with integrity, objectivity, exercise professional competence and due
care, maintain client confidentiality and at all times act in a professional manner.

Many believe that good corporate governance is one of the main ways of minimising divergent
behaviour by senior executives as seen in some of the company failures referred to earlier in this chapter.
Better corporate governance should (some argue) increase the fear of being caught. We discuss corporate
governance in the next section.

3.3 Governance
Governance is concerned with the processes and systems in place to ensure an organisation is well managed,
and that procedures are in place to enhance the operations. This also includes processes to protect the assets
of the organisation from external and internal threats. Good governance is not only relevant to companies
and the for-profit sector, but also for the not-for-profit sector where a large number of volunteers, often

LO 3.3
explain what is meant
by the term ‘corporate
governance’ and
identify the eight aSX
Corporate Governance
Council principles.

Stop and think 2

How do you think you will handle your future ethical problems? Can you do anything now to make it
easier to handle your future …

Chapter 1

Learning objectives
At the end of this chapter, you should be able to:
LO 1.1 explain what is meant by the term ‘accounting’

LO 1.2 explain the difference between management accounting, financial
accounting and tax accounting

LO 1.3 identify the main users of accounting information, and the main
purposes for which the information is used

LO 1.4 identify the limitations of accounting information

LO 1.5 discuss the factors that influence the choice of accounting systems for
different types of organisations

LO 1.6 demonstrate an understanding of the regulatory and environmental
considerations that can influence accounting decisions

LO 1.7 explain what is meant by the term ‘economic consequences’ and relate
this to the choice of accounting policies

LO 1.8 identify career opportunities for accountants.

Introduction to accounting

4

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
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Chapter 1 IntroductIon to accountIng 5

Introduction
This chapter discusses the role of accounting, its uses and its users. It will also give you an appreciation
of  the role of accounting within a business organisation and in its dealings with others. We introduce
some ideas about the ways accounting helps managers to meet business objectives by, for example, providing
the information necessary to make a decision about buying or renting premises. The ways that the size and
type of the organisation affect its accounting will be discussed. For example, in a small family restaurant
the accounting requirements are much less complex than in a large business such as Woolworths Limited.

accounting
(Chapter 1) The process of
identifying, measuring
and communicating
economic information
to permit informed
judgement and
decisions by users of the
information.

Figure 1.1
What is accounting?WHAT IS ACCOUNTING?

Often called the ‘Language of Business’

Accounting involves:

– recording – retrieving
– storing – summarising
– sorting – presenting

…info in various reports and analyses into
an easily accessible format

Budget wisely to ensure that your cash
outflows (tuition fees, etc.) are
not greater than your cash inflows
(monthly allowance)

Example:
$

Also, while there are many shareholders who rely upon published financial statements for information
about the financial performance and position of Woolworths, this is not the case with a small family
restaurant. In this chapter we discuss the information required by the internal stakeholders, like managers,
and those external to the organisation, like shareholders. The information provided to managers is
referred to as management accounting, while the information provided to external users is called financial
accounting. We discuss the relationships and linkages between management and financial accounting.
Another function of accounting worthy of mention is tax accounting, where information is provided to the
government for the purpose of levying taxes.

Another factor that both affects and is affected by accounting is the commercial environment.
The commercial environment can influence accounting through government legislation such as the adoption
of a new corporations act or through the introduction of a goods and services tax (GST). Accounting can
also be affected by changes in technology. For instance, developments in information technology have
allowed accounting information to be provided more quickly and efficiently, enabling different decisions
to be made than might otherwise have been the case. In addition to accounting in the business sector, we
also briefly discuss accounting in the public and not-for-profit sectors. Finally, we look at the limitations
of accounting information. As with most sources of information, there are imperfections. From this brief
résumé we can see that the accounting activity interacts with all levels of business.

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
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6 part 1 FInancIaL accountIng

Accounts are normally seen as a series of figures. These figures are, in fact, a convenient way of
summarising and reporting information that would be indigestible in narrative form. If you were asked
to provide a report that gives details of the value of everything you own, it would be simpler to use figures
to represent the value rather than words. The value of some things (e.g. good health, lead-free petrol or an
academic qualification) is difficult to express or analyse in numerical terms, but this has not stopped people
assigning a monetary value to them.

In order to understand the role and importance of accounting in the context of business organisations,
we need to decide what ‘accounting’ means. If you were to look up the word ‘account’ in Roget’s Thesaurus
you would be directed to words such as ‘report’ and ‘narration’. It is also referred to as commercial
arithmetic, double-entry bookkeeping and so on. These alternatives imply totally different things: a
report is something that conveys information for a particular purpose, while commercial arithmetic implies
a mechanical exercise following agreed rules or principles.

Besides problems about what accounting can and should document, other issues need to be considered;
for example, whether a numerical format is the best format for presenting the information. We also need
to consider who the report is for and what its purpose is. For instance, you may give different accounts of
your car’s condition to a prospective buyer and to a mechanic. In both cases the description could be true,
but the prospective buyer may be given general details about the car’s performance while the mechanic is
told about the car’s problems. So we can see that the question of defining accounting has many facets: what
you report, how you report, who you are reporting to and for what purpose. We shall look at these issues in
more detail later in this chapter. First, let us get a better idea of how accounting is generally understood by
examining some definitions from the accounting literature.

1.1 What is accounting?
There are a number of definitions of ‘accounting’ and they have changed over time in response to the
changing accounting environment. One definition that has stood the test of time is that given by the
American Accounting Association in A Statement of Basic Accounting Theory (also known as ASOBAT), which
defines accounting as:

the process of identifying, measuring and communicating economic information to
permit informed judgement and decisions by users of the information.

[1966, page 1]

First, this definition states the purpose of accounting. Second, it states that accounting has a number
of components – some technical (such as measuring the data), some analytical (such as identifying the
data) and some that require further information (such as the communication of this economic information
to users: who are these users and what form does this information take?). Finally, the definition implies
that the information has value in the decision-making process. The definition assumes that economic
information concerns any situation in which a choice must be made involving scarce resources.

Another definition was offered by the American Institute of Certified Public Accountants (AICPA) in
the 1973 Trueblood Report (Objectives of Financial Statements), which looks to the role of accounting in
decision making. The report lists 12 objectives that emphasise this decision-making process. They can be
summarised as follows:
» to provide information, through financial statements, for the making of economic decisions
» to provide information for predicting, comparing and evaluating the effectiveness of management’s use

of scarce resources

value
(Chapter 1) An item’s
equivalence in money.

double-entry
bookkeeping
(Chapter 1) The system
developed for recording
accounting information
based on the concept that
every transaction affects
two or more components
of the balance sheet
(accounting) equation. 

LO 1.1
explain what is
meant by the term
‘accounting’.

financial statements
(Chapter 1) The means
of conveying a concise
picture of the profitability
and financial position of a
business to management
and interested outside
parties.

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
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Key concept 1.1: Accounting

Important points made in these definitions are that:
» accounting is about quantitative information
» the information is likely to be financial in nature
» it should be useful for decision making in the allocation of scarce resources.

quantitative
(Chapter 1) The amount or
size of information.

Chapter 1 IntroductIon to accountIng 7

» to provide information to predict and evaluate the going concern of an entity
» to provide information on earnings, cash flows, profitability and the financial position of the entity.

The usefulness of accounting information for decision making is reinforced by accounting concepts
(known as the conceptual framework or the Framework), discussed in more detail in Chapter 2.

The conceptual framework gives us a clue to the fact that accounting is closely related to other disciplines
(we are recording economic data) and it also gives us some clue as to the uses of accounting information;
that is, for reporting on what has happened and as an aid to decision making and control of the business
or organisation (‘the entity’).

A definition from the Macmillan Dictionary of Accounting (Parker 1986) states:

accounting, in broad terms, is the preparation and communication to users of financial
and economic information. The information ideally possesses certain qualitative
characteristics. Accounting involves the measurement, usually in monetary terms,
of transactions and other events pertaining to accounting entities. Accounting
information is used for stewardship, control and decision making.

This suggests that accounting information has a key role in the running of a successful organisation.
The use of accounting information for business decision making is also brought out clearly in the

definition given by the American Accounting Principles Board in 1970:

Accounting is a service activity. Its function is to provide quantitative information, primarily
financial in nature, about economic entities that is intended to be useful in making
economic decisions, in making reasoned choices among alternative courses of action.

[APB 4]

The fact that accounting is described as a service activity reinforces the point made earlier: in order to
understand the usefulness of accounting, we need to know who uses it and for what purpose.

going concern
(Chapter 1) The
assumption that a
business will continue
to operate in the future
without any intention
to liquidate or to
significantly reduce its
scale of operations.

entity
(Chapter 1) A fictional or
notional being, such as a
business, club, company
or partnership, in respect
of which financial
statements occur and
accounts are kept.

cash
(Chapter 1) Cash on hand
and cash equivalents.

1.2 For what purpose is accounting
information used?
Accounting information can be used on at least two levels: that of the individual and that of the organisation
(or entity). At the individual level, people can use accounting information to help them control the level of
their expenditure, to assist in planning future levels of expenditure, to help them raise additional finance
(through, for example, mortgages or hire-purchase) and decide the best way to spend their money. So we can
see that for the individual, accounting can have three functions: planning, controlling and decision support.

At the level of the entity, accounting is used to control the activities of the organisation, to plan future
activities, to assist in raising finance and to report the activities and success of the entity to interested
parties and to the government to determine taxes payable.

An entity also uses accounting in planning, controlling and decision making (which are all internal activities
or functions). The major difference between the two levels is that in the case of an entity, accounting also has

LO 1.2
explain the difference
between management
accounting, financial
accounting and
tax accounting.

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
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8 part 1 FInancIaL accountIng

an external function: providing information to people outside the entity. This external function is usually
met through the provision of financial statements or financial reports, and is often referred to as financial
accounting. The external users require the information that is contained in the financial statements to use in the
decision-making process, or to evaluate what management has done with money invested in the business. The
financial statements must be prepared in accordance with Generally Accepted Accounting Principles (GAAP).
For individuals, the main external users are likely to be banks and the government for tax purposes.

Organisations also must report their activities to the government for the purposes of paying tax.
The preparation of the activities of the organisation must be in accordance with the tax rules as specified in
the tax legislation. This arm of financial accounting is often called tax accounting, where the objective is to
report the activities of the organisation in compliance with the tax rules so that the organisation pays the
minimum amount of tax to the government. The tax rules and GAAP rules are not always identical and thus
accounting profit differs from taxable income. Hence the reference to ‘two sets of books’, which does not
mean an organisation is engaged in deceit or misrepresenting its state of affairs.

Besides meeting the needs of external users, the system that produces the financial accounting reports
and tax returns also meets some of the needs of internal users. One need is to analyse the results of past
actions. This requires information on actual outcomes. These can then be evaluated against the projected
outcomes, and reasons for differences can be identified so that appropriate actions can be taken. This is only
one of a number of needs that managers have. Their other needs are met through different reports that are
based upon information provided by the internal accounting system.

The internal accounting system, which may be in addition to the system that underpins the external
financial reporting system, is often referred to as the management accounting function. The major
difference between financial accounting and management accounting is that management accounting is
primarily directed towards providing information of specific use to managers.

It is important to realise that the financial statements prepared for external users in accordance with
GAAP provide a summary of the outcomes of the decisions made by managers. The two types of accounting
are therefore interconnected and this can best be demonstrated by the following example. In  1999,
Woolworths introduced its Project Refresh strategy, which focused on improving business processes and
efficiencies throughout its supply chain. The supply chain can be described as movement of a product or
raw material (apples) from its original source (fruit grower) to the customer (you). We discuss the supply
chain and its management in more detail in Chapter 14. As a result of Project Refresh, Woolworths achieved
significant reductions in costs of goods by several billion dollars. The very successful strategy, initially
tracked and recorded through the management accounting system, was reported to the external users
(shareholders) through increased profits in the published financial statements. While we cover financial
accounting in Chapters 1 to 11 and management accounting in Chapters 12 to 18, it is important to keep
in mind that the two are connected and interdependent.

Financial accounting information, which is often less detailed, has many users apart from managers.
This leads us to the question posed below.

1.3 Who uses accounting information?
Whether accounting information relates to the activities of an individual or to a business entity, its users
can be placed in two broad categories:
» those inside the entity, such as managers or, in the case of a small business, the owner
» those outside the entity, including banks, analysts, the government, tax authorities, investors, creditors

and trade unions.

financial accounting
(Chapter 1) That part of
an accounting system
that tries to meet the
needs of various external
user groups.

accounting system
(Chapter 1) A collection
of source documents,
records, procedures,
management policies
and data-processing
methods used to convert
economic data into useful
information.

management accounting
(Chapter 1) That part of
an accounting system
that tries to meet the
needs of management
and internal users.

creditor
(Chapter 1) A person or
entity to whom a debt is
owed.

LO 1.3
Identify the main
users of accounting
information, and the
main purposes for
which the information
is used.

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
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Stop and think 1

What are the needs of internal users? Can you identify any other needs of internal users? If so, can you
suggest how these would be met?

Chapter 1 IntroductIon to accountIng 9

Internal users
The major internal user of accounting information is the management of an entity. For a small entity this
is likely to be the owner, or a small number of individuals in the case of a partnership. However, many
businesses are much larger and are owned by numerous individuals or groups of individuals, as is the case
with large entities such as Woolworths, National Australia Bank or Woodside Limited.

Often the major investors themselves are owned by others, as is the case with the major financial
institutions. In such a situation, it is extremely unlikely that the actual owners would or could take an
active part in the day-to-day running of the entity. Consider the chaos if all the people who bought shares
in Woolworths tried to take an active part in the day-to-day running of that business. Instead, these owners
or shareholders delegate the authority for the day-to-day running to a group of directors and managers.

These directors and managers are involved in the routine decision-making
activities of the entity and their information needs are equivalent to that
of the small business owner. These needs are normally met by unpublished
reports of various kinds, usually based on information provided through
both the financial accounting system and the management accounting
system. The exact nature of the reports varies from entity to entity. A
department store may require information about the profitability of
each of its departments, whereas a factory producing a small number
of different products is likely to require information about the profitability
of each product.

The form of each report will also vary according to its purpose. If
the purpose of the report is to assist management, it needs to show
the past transactions and performance, probably measured against some
predetermined standard. For planning purposes, though, a forecast of what
is likely to happen in the future is more important. These different forms of reports and ways of grouping
information are normally referred to under the heading of ‘management accounting’.

As stated earlier, management accounting is the focus of the second part of this book. At this stage it is
worth briefly summarising the different categories of management accounting reports. To do this we need
to make some generalisations about the needs of managers and to categorise those needs. In practice, of
course, there is a certain amount of overlap between the categories but we need not concern ourselves with
this at present. The broad categories that we have referred to in terms of the needs of managers can be
found in Table 1.1.

Rather than getting deeply involved at this stage, let us first look at the other broad area we identified –
the needs of users outside the entity: the external users. We shall be returning to the needs of internal users
in more detail in Chapter 12.

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Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
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Key concept 1.2: Financial accounting

Financial accounting can be thought of as the part of the accounting system that tries to meet the needs
of various external user groups. It does this by means of an annual report, which includes a statement of
comprehensive income (and possibly an income statement), a statement of financial position (sometimes
called a balance sheet), a statement of changes in equity, a statement of cash flows, notes to the financial
statements, information required by law and any additional information the entity wishes to supply.

10 part 1 FInancIaL accountIng

External users
We need to establish who the external users are. The potential users can be divided into three groups,
as follows:
» resource providers: employees, lenders (those who lend money to the entity; for example, bankers),

creditors, suppliers (those who supply the entity with goods and services) and, in the case of business
entities, investors (that is, shareholders – the owners of the entity)

» recipients of goods and services: those who benefit from the provision of goods and services by the
reporting entity; that is, customers

» parties performing a review or oversight function: government, trade unions and special interest groups
acting on behalf of the general public; for example, Greenpeace.
These groups are normally provided with information by means of published financial statements

prepared in accordance with GAAP, except for governments which as stated earlier receive information about
an organisation’s activities based on tax rules. In order to decide to what extent the financial statements
meet the needs of the external users and to understand more fully the importance of accounting, we shall
briefly discuss the needs of the external users listed above (see also Figure 1.2).

Owners and shareholders
In the case of small entities the owners are likely to be actively engaged in the day-to-day operations of the
entity. In these small entities, the owners’ needs are often met by the management accounting information
and reports.

lenders
(Chapter 1) Persons or
organisations which
permit the temporary use
of money; for example, in
return for payment.

Needs of managers

Need Explanation

Stewardship Stewardship is when managers need to protect the entity’s economic
resources (normally referred to as assets) from, for example, theft,
fraud and wastage.

Planning Managers need to plan activities so that finance can be raised, marketing
and promotional campaigns set up and production plans made.

Control Managers need to control the activities of the entity. This includes
measures such as setting sales targets, managing human resources,
and ensuring that there are sufficient raw materials to meet the
demands of production and sufficient goods in stock to satisfy customer
demand. It will also include identifying where targets can be set.

Decision making Managers need to make specific decisions. For example, should we
produce the item ourselves or buy it in? How much will it cost to
produce a particular item? How much money will we need in order to
run the entity?

Table 1.1

stewardship
(Chapter 1) The need to
protect a firm’s economic
resources (normally
referred to as assets) from
theft, fraud, wastage and
so on.

assets
(Chapter 1) An asset is
a present economic
resource controlled by
the entity as a result of
past events. An economic
resource is a right that has
the potential to produce
economic benefits. (IASB
Conceptual Framework,
para. 4.3 and 4.4)

Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-202
Hancock, Phil, et al. Contemporary Accounting, Cengage, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/deakin/detail.action?docID=6135923.
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Chapter 1 IntroductIon to accountIng 11

As the entity grows, however, it is likely that the owners will become divorced from its immediate and
routine operations. Therefore, the owners will not have access to the management accounting information,
which in any case may be too detailed for their requirements. This is the case in organisations listed on a
stock exchange. (A listed or quoted organisation is one whose shares are traded in an open market where
demand and supply govern the price of the share.) It is also the case in a number of other types of entities,
such as public sector and not-for-profit entities, where the functions of management are carried out by
people on behalf of the major stakeholders/owners.

In all these cases, the owners/major stakeholders need to know:
» whether the entity has done as well as it should have done
» whether the managers have looked after, and made good use of, the resources of the entity.

In order to evaluate whether the entity has done well and whether resources have been adequately used,
it is necessary to compare the results of different entities. Information of this type is normally based on
past results, and under certain conditions it can be provided by financial statements.

Owners/major stakeholders also need to know how the entity is going to fare in the future. Financial
accounting is unlikely to provide this information for a variety of reasons, in particular because it is largely,
if not exclusively, based on the past. Past results may be taken into account as one piece of information
among many when one is trying to predict the future, but in a changing world it is unlikely that past results
will be repeated because conditions will have changed.

Although there are limitations concerning the usefulness of the information in annual reports, they are
often the only form of report available to an owner/major stakeholder who is not involved in the day-to-day
activities of the business. Such users therefore have to base their decisions on this information, despite its
inadequacies. For example, students can study the financial statements of various universities to see how
much money they spend on resources such as the library and computing before deciding which university
to choose for their courses.

In practice, the shareholder’s involvement in this process of making comparisons (in the case of a listed
organisation) is likely to be fairly indirect. This is because most of the information contained in the annual
report has already been looked at by the owner’s professional advisers – accountants, stockbrokers or
financial analysts. The investor and owner are likely to base their decision on the professional advice they
receive, rather than relying upon their own interpretation of the …
ETHICS IN ACCOUNTING 2

Ethics in Accounting

Date

Running Head: ETHICS IN ACCOUNTING 1

Name

Discuss Craig’s ethical position/obligations and his possible courses of action. Your research should be drawn from the prescribed text, articles, and any relevant ethical frameworks.

Craig concludes that the cladding is highly flammable and potentially dangerous after conducting his investigation. City Builders is run by Tim Jones, who is also the owner. Tim is devastated after exhorting, and he knows that if he loses his structure permit and thus his company, he won’t be able to concentrate on his family. They are most likely to be evicted from their residence. Tim approaches Craig with a plan to make him a leader and investor in City Builders Pty Ltd at no cost to Craig before submitting his evaluation report to the ABA. He also offers to pay Craig over a third of the company’s profits. Because of the recent structure blast in Australia’s lofts, City Builders has been extremely helpful. The only stipulation Tim places on Craig is that he not reveals his cladding findings in his ABA paper (Freedman, 2019). Comment by Microsoft Office User: you have written only a small summary on the case scenario in the question and cite an article by Freedman 2019? what do you mean by that??

The head of a review group acts as a manager and can regularly recognize excellent performance and provide insightful analysis for improvement in implementation. The lead investigator should demonstrate how the evaluation party should behave by tasks. A visionary must demonstrate leadership and provide real-world examples. The community leader should demand that the members follow all of the organization’s policies, procedures, and customs. This includes adhering to the same working hours, dres’ code, meal hours, and other requirements. Colleagues should try to blend in with the environment they’re inspecting in. Any behaviour that distinguishes the company would detract from its ability to manage the organization under consideration. The group leader should be reasonable to both the group and the assessed association when dealing with any problem between the two. The pioneer must maintain objectivity when gathering information about current events to resolve any character conflicts. If there is significant doubt about the quality of the result of the check of existing realities, and further evaluation fails to remove the uncertainty, the item should be withdrawn or offered in language that recognizes the extent of weakness at the post-review (leave) conference. The review’s objectivity and decency were shown by this type of operation. If there are some character conflicts between members of the analysis committee, the group chief is responsible for intervening quickly and resolving the conflict. The target should be established in private and for the benefit of the entire evaluation committee and the organization being reviewed. Any analysis group’s well-defined policy should be that no curveballs are included in the review at any time. An analysis is an inhospitable environment for “shroud and knife tactics,” “witch-hunting,” or the identification of situations that arise at an inopportune moment (Timmy, 2019). Comment by Microsoft Office User: This is looks like a general introduction which is irrelevant to the case. You should specifically discuss the components of the ethical issue that Craig is facing doing his audit with the contractor? For example, what is the ethical issue that his facing and how to deal with it? What action should he take? Either reporting this or accepting the offer? Also, you can find similar cases to this case and cite it to support your answer. Again, please be more relevant to the case and write about it specifically Comment by Microsoft Office User: What do you mean by that? I have no clue. I think you it is better to remove it and talk specifically to the case. Please be more relevant to the case and write about it specifically Comment by Microsoft Office User: As the case is motioned, Craig determines that the cladding and the material is dangerous and his sure about it. I believe you should fix this sentence as you motioned there is a doubt and uncertainty of the quality which is not the case. Comment by Microsoft Office User: I believe this information is not relevant to the case. Why do you think this is useful information?? Again, please be more relevant to the case and write about it specifically
Before sufficient transparency at the post-review (leave) gathering or structured review study, moral assessments require complete authenticity in any conclusion (or perception) with dependable persons from the reviewed organization to verify its validity. The group leader should ensure that he (or she) and his or her colleagues maintain their integrity. They do not consider endowments, amusements of nature, or degrees of enjoyment that might affect the analysis or influence the relationship between the two associations (auditee and review group). If members of the inspected organization offer to accompany the evaluation party out to lunch, it is the group leader’s responsibility to clarify the rules for accepting the lunch, such as limiting the amount of time spent away from the evaluated workplace. Inspectors also approach restricted data of the reviewed organization during the evaluation. The reviewers have made an ethical promise not to share this information with others. Comment by Microsoft Office User: I think you meant that they should do the review work with full integrity without considering the emotional relationship or influence. Please rephrase the sentence in good writing. Comment by Microsoft Office User: Yes you are right as accepting the gifts and lunches sometimes considered as breaching the integrity and auditors cannot accept these offers, but the example in the case is actually accepting is the position and the profit offer and I think your example of the lunch is not relevant. Please edit it to reflect the example of the case which is the offer and the position. Again, please be more relevant to the case and write about it specifically Comment by Microsoft Office User: I believe you meant in this sentence that the information that the audit team is reviewing should be confidential and not shared with anyone. I think this sentence needs to be rephrased in better words to reflect the meaning correctly

Overall Feedback On Part 2 A question:

The question is asking about the legal position of the engineer (Craig) his obligations, and the course of action that he needs to take in the case regarding the owner’s offer of not disclosing the report which shows his findings about the cladding in his report to the ABA. This is an accounting ethical issue where the external accountant should maintain the report in integrity and decline the offer as well as reporting this ethical issue to the both his company and the contractor (ABA) as the material is very dangerous to use. You should have discussed this ethical issue specifically rather than talking in general aspects and irrelevant components. Also, please support your answer with relevant cases if any.
Part 2 B

Discuss the ethical or legal implications that may follow if Harminder and his family sell their shares before this announcement and their possible courses of action.

Harminder recently ate with his sister Priya, who works as a senior bookkeeper for AAA Ltd, a massive pharmaceutical company listed on the Australian Stock Exchange. Priya expressed her concerns over supper about a slew of recent complaints centred on CoVax, one of their main products. CoVax, a vaccine promoted as a treatment for a variety of potentially fatal illnesses, has reportedly been responsible for some unexplained customer casualties. There will be a thorough investigation by experts into the company and its operations about the drug CoVax and other products. Harminder and his family have always supported Priya’s career decisions, and as a result, they have invested a significant sum of money in AAA Ltd shares. The family is considering selling all of their properties before the story reaches the financial papers, which will almost certainly happen over the next few days. Comment by Microsoft Office User: You are just summarizing the scenario. This is should not been done this way, as you could you summarize the scenario in one or two sentences at most and provide the ethical issue in the case and the application. Please remove this part and rewrite to reflect to above motioned feedback and comments.
According to SAS no. 99, the analysis group would discuss the possibility of a material misquote in the expenditure papers as a result of misrepresentation before and after the data collection measure. This necessary “conceptualizing” is another idea in inspecting writing, and companies can decide how to better carry out this requirement right away in the selection period. Keep in mind that conceptualizing is a necessary approach that can be implemented with the same degree of caution as any other analysis system. The meeting’s main goals are to create new ideas and to discuss them. The first is crucial, as it ensures that the loyalty department has a good understanding of the information that prepared peers have about their interactions with customers, as well as how extortion can be carried out and masked. The meeting’s second objective is to establish the right “tone at the top” for leading the commitment (Terry, 2019). Comment by Microsoft Office User: What is SAS no. 99?? I could not find it in the references list. Please make sure to make easier for the reader to find what you have cited. Comment by Microsoft Office User: Please rephrase this sentence to better understanding for the reader. Comment by Microsoft Office User: I think this information is not relevant to the case and topic. Please be specific Comment by Microsoft Office User: Which meeting? I believe that information is not relevant to the subject. Comment by Microsoft Office User: How this is relevant to the case?
The requirement that conceptualizing is done with a demeanour that “incorporates a scrutinizing spirit” is an attempt to demonstrate the required degree of expert caution and “set” the committee’s way of life. The belief is that by instilling a review commitment culture, the whole commitment would be implanted, making all review methodologies significantly more effective. The basic fact that the commitment party has a sincere discussion about the substance’s powerlessness to misrepresentation often helps to warn reviewers that the risk remains in any commitment regardless of any prior experiences or skewed inclinations about administration’s trustworthiness and respectability. Comment by Microsoft Office User: This is very general. Please summarize the general concept and be more specific to the case.
It’s worth noting that SAS no. 99 doesn’t restrict conceptualization to the evaluation cycle’s planning phase. Conceptualizing may be applied to any aspect of the data collection process. Inspectors coherently collect data in the commitment but look for freedoms to fully conceptualize. A few examiners could plan to meet for another round of discussions at the end of the analysis to discuss all of their colleagues’ findings and encounters, as well as whether the group’s assessment of and response to the risk of content misquote due to misrepresentation was appropriate (RAMO, 2019). Comment by Microsoft Office User: I believe this is not relevant to the subject. Please remove Comment by Microsoft Office User: What do you mean by this? How is this relevant to the case?
The AICPA’s comprehensive anti-fraud and corporate duty policy is built on the latest misrepresentation principle, Statement on Auditing Standards no. 99, Consideration of Deception in a Financial Statement Audit. The program’s mission is to revive examined budget summaries as an unmistakable picture window into corporate America and to change the faith of financial backers in our capital market sectors. The AICPA is committed to reducing the frequency of financial misrepresentation by providing CPAs with clear and focused reviewing the guidance and by establishing a new foundation for extortion investigations. This article was adapted from part 2 of Michael Ramos’ Fraud Detection in a GAAS Audit SAS No. 99 Implementation Guide, which was published by the AICPA at the same time as the latest misrepresentation standard was published. This non-authoritative practice aid provides a top-to-bottom, segment-by-segment explanation, as well as execution guidance and practice tips for the standard. SAS no. 99 allows analysis colleagues to talk with one another during the dedication about the risks of material error as a result of extortion, in addition to conceptualizing. Indeed, the requirement allows the evaluator with definitive responsibility for the review to determine if adequate communication among colleagues was maintained during the engagement (Freddy, 2018). Comment by Microsoft Office User: You could summarize this in less wording. Also,

Overall Feedback On Part 2 B question:

This question is looking for the implication, ethical issue, and conclusion when the family members benefit from the distribution of the confidential information which Priya shared with her family. All confidential information cannot be shared even to family to enable them financially benefits from the information. This is unethical issue that Priya has done, and will impact the company as well. You should have discussed how the management of the organization can prevent employees to distribute such confidential information before the official announcements. Also, you should explain why Priya action is not ethical from the accounting and business perspective and how to solve these issue nowadays. Please be more specific and relevant to the case and refer to the textbook (chapter 3) to build your answer on.

References

Freddy. (2018). Code of Ethics. 1(4), 11-16.
Freedman, J. (2019). Ethical Responsibility in Accounting. Retrieved from https://smallbusiness.chron.com/ethical-responsibility-accounting-58071.html

RAMO, M. (2019). Auditors’ Responsibility for Fraud Detection. Retrieved from https://www.journalofaccountancy.com/issues/2003/jan/auditorsresponsibilityforfrauddetection.html
Terry, G. (2019). Concept, Background and Purpose of the Code of Ethics. 11-20.
Timmy. (2019). Ethical Responsibility of the Auditor. Retrieved from https://qualityamerica.com/LSS-Knowledge-Center/qualitymanagement/ethical_responsibility_of_the_auditor.php

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